Chapter 25 - Inventory Management Flashcards
1
Q
What happens to the relevant ordering and carrying costs when determining the EOQ?
A
They are minimized
2
Q
What consists of incremental costs plus opportunity cost of capital?
A
The annual relevant carrying costs
3
Q
What does just-in-time purchasing require?
A
Organisations to place smaller purchase orders with their suppliers
4
Q
When do carrying costs arise?
A
When an organisation holds its goods for sale
5
Q
What does EOQ ignore?
A
Purchasing costs and stockout costs
6
Q
Three types of inventory costs
A
Ordering costs (acquiring inventory) Carrying costs (holding costs) Opportunity costs (the cost of not having inventory on hand when needed)
7
Q
Formula method (EOQ)
A
Q = sqrt(2DO/H) d = total demand for period o = cost per order h = holding cost per unit
8
Q
Formula for reorder point
A
reorder point = rate of usage x lead time
